Square Inc. (SQ) Shares Surge +45 Percent on First Day
Shares of Square Inc. (SQ) were up +0.78 or +5.97 percent to $13.85 in Friday’s premarket after the company had its first day of public trading following its initial public offering yesterday. Shares for the initial offering were priced at $9 and traded as high as $14.78 before settling at $13.07, up +4.07 or +45 percent higher in Thursday’s regular trading session.
Yesterday’s initial public offering followed indecision in the company’s pricing and valuation of the offering. Originally pricing the offering in a range of $11 to $13, the higher level would have given the company a valuation of approximately $6 billion. Nevertheless, at $9 per share, the company is valued at about $2.9 billion.
The price of the offering is lower than the company’s Series D round, which was sold to J.P. Morgan Chase (JPM) and Rizvi Traverse in September of 2012 for $11.01 per share, and substantially below the $15.46 price Square had offered private investors in a fundraising effort last year.
To keep original pre-IPO investors, which include Goldman Sachs (GS) and JP Morgan Chase & Co., the company guaranteed investors a “ratchet”, which gives the early investors the possibility of converting their private shares into public shares. Due to this feature, Square wound up issuing extra shares to those investors ensuring them a 20 percent return on their investment and further diluting Square stock with an additional 10.3 million shares which represents 3 percent of the company’s outstanding stock.
Jack Dorsey, Square’s founder and Chief Executive, who is also the Chief Executive of Twitter, said in an interview after the offering that, “We have a great beginning” adding that, “I don’t see negativity as necessarily something that detracts from our work. I want to get back to a steady state and back to business,” he reiterated that Square’s strategy was “to continue to save people trips to the bank. We’re not going out there to say we’re getting rid of the banks or card networks. We’ve just put a much cleaner face on that infrastructure.”
Approximately 10 percent of the offering was allocated to retail investors, while institutional investors bought 90 percent. The stock’s rally yesterday was in large part due to individual investors that did not get in on the initial offering. Square’s stock continues to gain in this morning’s premarket, indicating optimism for the company and the possibility that the initial offering was at a discount to the company’s estimated valuation.
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